Finance Minister P Chidambaram on Thursday announced the setting up of two sub-committees to decide on the contentious issues of compensation to states for loss of revenue on account of central sales tax (CST) and to finalise the design of the goods and services tax (GST).

The two committees will work simultaneously and give their reports by December 31, after which the Empowered Committee of State Finance Ministers on GST will discuss the recommendations.

“We had a very free and frank discussion on GST, following which it was clear that the two issues still need to be resolved — compensation for loss of CST and the design of GST,” finance minister P Chidambaram told reporters.

Chidambaram who met the empowered committee for the first time after taking over as finance minister in August, said that although there was a broad consensus on GST, some issues still had to be sorted out.

“The two committees will be initially headed by senior officials from state governments and nominees of the central government and, after the reports are prepared, ministers will join the panel,” he said. Both the reports would be discussed threadbare by the empowered committee sometime in January. Thereafter, a final decision would be taken.

“We had serious concerns over the fiscal autonomy of states as and when GST is implemented. That will now be looked after by the two sub-committees,” Madhya Pradesh Finance Minister Raghavji told reporters after the meeting.

He said that some states, including Madhya Pradesh, were of the view that the Centre should not claim its share in sales tax and that tax rates should be determined by states, who should also be allowed to administer those.

GST, which will empower the Centre and states to simultaneously tax supply of goods and services, was to be introduced from April 2010 and has since missed several deadlines. The Bill is currently being vetted by the Parliamentary Standing Committee on Finance. The committee had raised certain queries to which the revenue department has already responded. The report of the committee is awaited.

Chidambaram had earlier exuded confidence that the Centre would be able to resolve all issues concerning GST so that the new indirect tax regime could be rolled out from April 2013. CST is collected by the Centre and distributed among states.

As a precursor to GST, the Centre and states had agreed in April 2007 to phase out CST over a period of three years and in line the CST rate was reduced to three per cent and subsequently to two per cent.

The Centre had already compensated states for losses up to 2010-11. “The first compensation was paid for two years and part of it was paid in the third year,” said Chidambaram.

As the Centre refused to go on compensating the states for delay in implementation of GST, states had argued that when it was decided to phase out CST, it was presumed GST would be implemented from April 2010. “Any decision on GST rollout will happen only when the two committees give their final report and the state finance ministers agree to it,” said Raghavji.